Reasons for Market Failure and the Roles of Government
Reasons for Market Failure and the Roles of Government
To Improve the Market Outcomes What is market efficiency? Market efficiency is defined as all participants in a market can get the maximum benefits and used the minimum cost and effect to transact (BusinessDictionary.com, 2011). Besides that, the definition of market efficiency is covered by the market and investor group. In other words, efficiency refers to the productivity or the size of the economics pie. If the size of economics more big, the standard of living of people will be greater. Market efficiency means that there are no externalities, no market power or competitive power and it has the complete information. According to Dothan (2008), “the market efficiency is separate into two parts which are prices fully reflect all available information, and there are no trading strategies that produce positive, expected, risk-adjusted excess returns”. However, it is impossible that the market will always efficiency. This is because there are many issues or effects which contain in the market. According to Mankiw (2007), “Market failure is a situation in which a market left on its own fails to allocate resources efficiently”. Moreover, fail to allocate resources efficiently means that the benefit does not equal to the cost, or the demand does not meet the supply to make an equilibrium point. Furthermore, when a market cannot maximize the surplus available in market, it means that it is market failure. There are many reasons that cause the market fail to allocate resources with reasonable efficiency. One of the reasons is externality. He stated, “Externality which is the impact of one’s person actions on the well-being of a bystander” (Mankiw, 2007). Moreover, when a bystander or an outsider influenced by consumer and producer; therefore, it consider an externality to the market (BasiceEconomics.info, 2011). Bystander means someone is not a producer or consumer and sellers or buyers.
To Improve the Market Outcomes What is market efficiency? Market efficiency is defined as all participants in a market can get the maximum benefits and used the minimum cost and effect to transact (BusinessDictionary.com, 2011). Besides that, the definition of market efficiency is covered by the market and investor group. In other words, efficiency refers to the productivity or the size of the economics pie. If the size of economics more big, the standard of living of people will be greater. Market efficiency means that there are no externalities, no market power or competitive power and it has the complete information. According to Dothan (2008), “the market efficiency is separate into two parts which are prices fully reflect all available information, and there are no trading strategies that produce positive, expected, risk-adjusted excess returns”. However, it is impossible that the market will always efficiency. This is because there are many issues or effects which contain in the market. According to Mankiw (2007), “Market failure is a situation in which a market left on its own fails to allocate resources efficiently”. Moreover, fail to allocate resources efficiently means that the benefit does not equal to the cost, or the demand does not meet the supply to make an equilibrium point. Furthermore, when a market cannot maximize the surplus available in market, it means that it is market failure. There are many reasons that cause the market fail to allocate resources with reasonable efficiency. One of the reasons is externality. He stated, “Externality which is the impact of one’s person actions on the well-being of a bystander” (Mankiw, 2007). Moreover, when a bystander or an outsider influenced by consumer and producer; therefore, it consider an externality to the market (BasiceEconomics.info, 2011). Bystander means someone is not a producer or consumer and sellers or buyers.